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Arkansas Bank and Trust Company


RE: Arkansas Bank and Trust Company Hot Springs, Garland County, Arkansas

Application Pursuant to Section 24 of the Federal Deposit Insurance Act for Consent to Indirectly Engage as Principal in Real Estate Activities Which May Not Be Permissible for a Subsidiary of a National Bank


Pursuant to the provisions of section 24 of the Federal Deposit Insurance ("FDI") Act, Arkansas Bank and Trust Company, Hot Springs, Arkansas (the "Bank") has filed an application with the Federal Deposit Insurance Corporation ("FDIC"). The Bank requests the FDIC's consent to continue to engage as principal indirectly in real estate investment activities through Advantage Corporation, a wholly-owned subsidiary of the Bank which holds ownership interests in real estate properties for investment purposes.

The activity of holding real estate investment properties may not be a permissible activity for a National bank or a subsidiary of a National bank. State chartered FDIC-insured banks may not engage as principal in an activity prohibited to nationally chartered banks unless they obtain consent from the FDIC. Consent may not be granted unless the bank is in compliance with applicable capital standards and the FDIC determines that the activity poses no significant risk to the deposit insurance fund.

Arkansas State law permits the holding of real estate investment properties by bank holding companies, banks, and bank subsidiaries. In this case, the Board of Governors of the Federal Reserve also specifically approved real estate equity activities by the bank on November 20, 1984. The approval by the FDIC of this application is granted to allow the bank to pursue an orderly divestiture of real estate assets and is not intended to allow the Bank to engage in any new real estate investment activity at the subsidiary level. Existing activities shall continue to be conducted in a manner and in an amount which are consistent with that allowed by Arkansas State law and the restrictions of the Federal Reserve.

Since 1983, Advantage Corporation has purchased interests in real estate properties for passive investment purposes. The Bank requests consent from the FDIC to continue to engage, through Advantage Corporation, in the activity of holding these investment real estate properties while it pursues an orderly divestiture of these properties.

In connection with this application, the Corporation has reviewed available information and has also taken into consideration the financial and managerial resources and future earnings prospects of the institution associated with the continued holding of these real estate properties and the risks associated with owning interests in these particular properties.

The Bank is in compliance with applicable capital standards. As of March 31, 1995, the remaining investment in Advantage Corporation represented approximately 1.0 percent of the Bank's Tier 1 capital and considerably less than 1.0 percent of its total assets. Advantage Corporation's activity does not present material safety and soundness concerns.

Having found that the activity in question involves the retention of investments that did not require FDIC review or consent at inception, but do now because of statutory revision; that the real estate investments are nominal in relation to capital and total assets and will be limited to those parcels currently held; that the institution's financial condition and management are adequate; that the State authority and the Federal Reserve do not object to the investments; that retention of these investments does not pose any significant safety or soundness risks; and that the bank is in compliance with applicable capital standard, the FDIC concludes that the subsidiary's retention of the properties for a period not to exceed December 31, 1997, does not pose a significant risk to the Bank Insurance Fund and therefore may be and hereby is approved subject to the following restrictions.

The applicant shall notify the FDIC of any significant change in facts or circumstances. The FDIC's action is conditioned on its ability to alter, suspend, or withdraw its approval in the event the facts and circumstances presented in the application change significantly. In addition, transactions between the Bank and its subsidiary that would be covered transactions for purposes of Sections 23A and 23B of the Federal Reserve Act, 12 U.S.C. §§ 371c and 371c-1, if the subsidiary were an affiliate of the applicant under Sections 23A and 23B, shall not exceed the amount limitations and shall be made in accordance with the other restrictions of Sections 23A and 23B to the same extent as though the subsidiary were an affiliate of the applicant. The Bank shall continue to meet applicable minimum capital standards. The Bank shall not acquire any new real estate investments through Advantage Corporation. In addition, the Bank shall provide no funding to Advantage Corporation or incur additional debt through Advantage Corporation without prior FDIC approval. If the Bank has not divested of these assets by December 31, 1997, the Bank must apply to the FDIC for an extension of the divestiture period. This approval is limited to the remaining real estate parcels held, and this activity shall continue to be conducted through its wholly owned subsidiary.

Finally, the FDIC specifically notes that its consent action is unique to this case, that it was significantly influenced by acquisition pre-section 24 and that its view of a de novo request for such activity might well be different.